Strasbourg, 11 December 2006

Dear Mr X,

On 11 July 2005, Mr Y. made a complaint to the European Ombudsman, on behalf of a company, against the European Commission concerning the execution of service contract.

On 21 July 2005, I forwarded the complaint to the President of the Commission. On 3 August 2005, Mr Y. sent an additional document, which I forwarded to the Commission. Mr Y. contacted my services to obtain information on the complaint on 7 December 2005. The Commission sent its opinion on 8 December 2005. On 20 December 2005, Mr Y. indicated that he was to leave the company and that you would be in charge of it. I forwarded the Commission's opinion to you with an invitation to make observations, which you sent on 23 February 2006.

On 31 May 2006, I informed you of the progress made with your complaint. On 2 June 2006, you sent me additional documents concerning your complaint and asked for further information. I replied to you on 20 June 2006.

I am writing now to let you know the results of the inquiries that have been made.

THE COMPLAINT

According to the complainant, the facts can be summarised as follows.

The complainant's company was awarded a service contract. The project was launched on 27 August 2002 to be completed by 26 October 2005. The Delegation of the European Commission in a third country (the "Delegation") refused to make payments for the international travel expenses and per diems for experts, as incidental expenditure.

On 13 June 2003, the complainant contested the decision.

On 18 July 2003, the Delegation sent a letter to the complainant, explaining that, according to the terms of reference (which are part of the contract), incidental expenditure covers "international, local travel and per diem for experts" and that, according to Annex V of the contract, "the provision for incidental expenditure does not cover travel to/from the beneficiary country for international experts (other than for missions within the contract)". The Delegation also explained that, under a standard service contract for European Community external aid, relocation and travel for personal purposes were included in the fees. It therefore informed the complainant that his invoice (No 2003/018) totalling EUR 25 706.42 was not accepted.

On 27 October 2003, the complainant apparently sent a reminder to the Delegation.

On 12 November 2003, the Delegation informed him that, after re-evaluation of the first invoice submitted, EUR 8 829.65 would be paid. The difference between the amount paid and the invoice resulted from ineligible expenditure claimed for per diems for stays in the third country and travel costs. As regards the further requests for payments (Nos 2003-34 and 2003-40), a further amount of EUR 71 135.91 would be paid. This amount also differed from the invoice sent by the complainant, because some travel costs, fees and per diems were considered ineligible.

On 14 November 2003, the complainant expressed his disagreement with the Delegation's position regarding the relevant expenses. He argued that the terms of reference were explicit and stated that incidental expenditure covers experts' international and local travel as well as per diems. He also reminded the Delegation that the breakdown of the incidental expenditure budget proposed and approved in the Inception Report(1) included those expenses and that the Project Manager(2) agreed that all travel costs and per diems should be reimbursed.

On 10 February 2004, the Delegation replied to the complainant confirming its position.

In his complaint to the European Ombudsman, the complainant argued that the Delegation should not have refused to pay the international travel costs and per diems of experts as incidental expenditure. The amount due from the Commission was EUR 50 000.

As regards international travel, and according to the complainant, the terms of reference take precedence over Annex V to the contract. Furthermore, Annex V accepts that airline tickets for missions within the terms of the contract should be reimbursed.

As regards per diems, the complainant considered that, on the basis of the letter sent by the Commission on 7 November 2001, the incidental expenditure should cover travel costs and per diems and that the fee rates should cover the remuneration and administrative costs for the experts. Moreover, according to the complainant, this letter was ambiguous in that it did not state clearly that the international travel and the per diems for experts outside their home country were not to be considered as incidental expenditure.

The complainant also noted that, out of a total budget of EUR 700 000, EUR 370 000 were for incidental expenditures and EUR 330 000 for fees. The fee budget was only meant to cover fees. If the idea was that the travel expenses and per diems were to be paid by the fee budget, there should have been a revision of the terms of reference with a reduction of the incidental expenditure budget and an increase of the fee budget. When the complainant tendered for the project in 2001, the budget was prepared on the basis of the terms of reference. International travel costs and per diems were included in the incidental expenditure budget.

The complainant alleged that the Commission’s refusal to reimburse travel costs and per diem payments for the experts is not in accordance with the contract. The complainant claimed an amount of EUR 50 000.

By letter of 3 August 2005, the complainant indicated that the amount of EUR 50 000 was only an approximate assessment. He wished that the travel costs and the per diems for experts be refunded by the Commission and added that the amount might slightly differ from the stated figure of EUR 50 000.

THE INQUIRY

The Commission's opinion

In its opinion, the Commission made, in summary, the following comments.

An international restricted service tender was launched in 2000 by the Commission's responsible Directorate-General. Six companies/consortia, including the complainant, were sent the tender dossier and were invited to submit a tender.

The sections of the tender dossier relating to the budget read:

A. Annex II - Terms of references - 5.3-Budget

"The maximum budget available for the technical assistance to be contracted through this tender is EUR 700 000, which includes fees for the EU co-director, members of the TAT(3) and other training experts, all expenses (both EU/[third country] and inside the [third country]) and training activities.

The provision for incidental expenditure with a budget of EUR 370 000 as mentioned in Annex V of this tender dossier should cover the following costs:

- International, local travel and per diem for experts,

- Study visit (travel and per diem of [local] staff to EU laboratories),

- Translation,

- Training activities."

B. Annex V - Budget Breakdown

As referred to above, the particular precisions concerning incidental expenditure, especially in terms of travel and per diems for experts, were further explained, in Annex V-Budget Breakdown:

- "All fee rates must cover: 1) the remuneration actually paid to the experts concerned per working day, 2) administrative costs of employing the relevant experts, such as relocation and repatriation expenses, accommodation, expatriation allowances, leave, medical insurance and other employment benefits accorded to the experts by the consultant, 3) the margin, covering the Consultant's overheads, profit and backstopping facilities.

(...)

- 1) the provision for incidental expenditure does not cover travel to/from the beneficiary country for international experts (other than for missions within the contract) (...) The financial evaluation of tenders only considers the fee rates, since the provision for incidental expenses is determined in the terms of reference".

C. Clarification letter

During the tendering stage, a request for clarification on the above issue was received from one of the shortlisted tenderers on 7 November 2001. The following clarification was sent to all shortlisted tenderers:

"The incidental expenditure should cover the costs for:

- study visits (including travel and per diem for [local] staff to EU laboratories),

- translation,

- training activities,

- travel costs (international and local) for foreseen missions,

- per diems and overnight allowances for long and short terms experts.

Consequently, the fee rates to be indicated for the different experts should comprise:

- the remuneration actually paid to the experts concerned per working day and

- the administrative costs of employing the relevant experts, such as relocation and repatriation expenses, accommodation, expatriation allowances, leave, medical insurance and other employment benefits accorded to the experts by the consultants."

D. Evaluation

All of the invited six tenderers submitted their offers. Given the higher technical quality of its tender, notwithstanding its being the highest financial offer, the complainant was recommended for the award.

E. Contract

On 18 June 2002, a contract was signed between the Commission and the complainant for the amount of EUR 699 920 (fee: EUR 329 920, incidentals: EUR 370 000). The contract included the Special Conditions, Annex I-General Conditions, Annex II-Terms of reference, as well as the clarification on the terms of reference dated 7 November 2001, Annex III-Organisation and Methodology, Annex IV-Key Experts, Annex V-Budget. Article 2 of the contract explained that "in case of any contradiction between the above documents, their provisions shall be applied according to the above order of precedence".

After the signature of the contract, responsibility for it was devolved from the responsible DG to the Delegation.

F. Inception Report

Finally, in the Inception Report, reference is made to the following incidental expenditures: (i) travel: EUR 42 500; (ii) per diems: EUR 53 340; (iii) training activities: EUR 182 732; (iv) study visits: EUR 56 000, without giving any information as regards to which mission the travels and per diems were related. The Report was approved by the Task Manager of the Delegation in January 2003.

During the implementation of the contract, certain requested amounts were partially rejected on the ground that they included ineligible costs. In a letter dated 18 July 2003, the Delegation explained that "[t]ravel (local or international) referred in the terms of reference of the contract covers travel made for cause of required project missions and per diems paid for these project missions. Any travel made by the experts outside of project missions is covered under fees. This is further confirmed by Annex V: Budget Breakdown of your contract which reads 'Additional notes relating to the provision for incidental expenses: the provision for incidental expenditure does not cover travel to/from the beneficiary country for international experts (other than for missions within the contract)." In another Delegation letter of 10 February 2004, it was explained that, "although the terms of reference of your contract indicated that the incidental expenditure cover international, local travel and per diem for experts, following a request for clarification from your company (date 7 November 2001) on what the fees for experts include, the clarification was very clear: 'the fee rates to be indicated for the different experts should comprise: the remuneration actually paid to the experts concerned per working day and costs of employing the relevant experts, such a relocation and repatriation expenses; accommodation, expatriation allowances, leave medical insurance and other employment benefits accorded to the experts by the consultants'. As a result only travel costs and per diems for the foreseen missions from principal base of operation are eligible costs. This clarification is part of your contract and the budget which you submitted should have taken this into account."

The Commission made the following comments on the arguments raised by the complainant.

(1) The Delegation maintained its position that, according to the contract signed with the complainant, in order to be considered for payment by the Delegation, per diems and travel costs can only be considered eligible costs under incidental expenditure if they are related to missions from the principal base. Costs for relocation (such as travel from/to Europe/third country, accommodation costs in the third country) are assumed to be included in the fee rates.

(2) As for the arguments raised by the complainant:

(i) The terms of reference provide general information on the budgetary issues while they explicitly refer to Annex V ("as mentioned in Annex V of this tender"), for further elaboration, for the definition and implementation of terms such as "travel" and "per diems". In this sense, the provisions in Annex V are not contradictory, but form part of the terms of reference.

(ii) In addition, the clarification letter sent to all tenderers, complementing the terms of reference, confirms the provisions of Annex V: the fee rates cover relocation, repatriation, accommodation, and expatriation allowances. By tendering and having acquired knowledge of these clarified terms of reference, the complainant is deemed to have accepted the said provisions as contractual terms. Moreover, the relevant clarification letter was included in the contract and was signed by the complainant.

(iii) Moreover, Article 3 of the Special Conditions, which forms part of the contract's main body and takes therefore precedence over the terms of reference, indicates that:

"This contract, established in euro, is a fee-based contract. The maximum contract value is EUR 699 920. The fee rates to be paid for the experts provided by the consultant to carry out the services, together with the provision for incidental expenditure, are set out in the budget breakdown."

(3) Furthermore, the argument that, by approving the Inception Reports, the Delegation agreed to the budget breakdown as proposed by the complainant, is considered to be irrelevant as:

(i) the budget submitted by the complainant with the Inception Report is only indicative, as specified in the report itself,

(ii) there is no explicit information referring to the interpretation of the complainant on "per diems" and "travel".

(4) Finally, the price of tender was a factor considered at the evaluation stage. The complainant was awarded a commercial contract on the basis of its technical merits and fee rates. Any changes to the interpretation of what should be included in the fee rates would lead to distortion of fair competition.

Therefore, it is not possible to agree to any of the arguments raised by the complainant.

The Commission considered that its services had acted properly, had respected the contractual terms binding upon them and that, therefore, no instance of misapplication of the provisions of the contract had taken place.

The Commission argued that the complainant's claim did not appear to have relevant grounds. The request for payment of EUR 50 000, based on the claim that the fee requested for the experts should not include per diems and international travel costs (those costs being reimbursed by the incidental expenditure budget), does not comply with the conditions of the contract.

The complainant's observations

The complainant's observations can be summarised as follows.

The Commission's position is that the terms of reference provide general information on budget questions and refer to Annex V for more detailed information. According to the complainant, the Commission wrongly concluded that the provisions of Annex V are not in contradiction with the terms of reference but are part of them. On the contrary, the complainant was of the view that the terms of reference are specific to each market, whereas Annex V provides for general provisions applicable to all contracts. The reference to Annex V in the terms of reference is the following: "with a budget of EUR 370 000, as mentioned in Annex V". As such, it does not reasonably allow one to draw the conclusions reached by the Commission. The Commission's reasoning is equivalent to negating the rule of priority of documents set up in Article 2 "Structure of the contract" of the Special Conditions.

According to the complainant, Article 3 of the Special Conditions has no relevance in the present case. The same applies to the alleged breach of equality between tenderers. In effect, this argument is based on the assumption that none of the tenderers interpreted the relevant terms of reference or drew up their offer in the same way as the complainant.

The complainant requested the Ombudsman to take the view that the Commission's interpretation was not in compliance with the provisions of the contract. He repeated that the amount of EUR 50 000 was only indicative.

THE DECISION

1 Alleged breach of contract

1.1 The present complaint concerns the execution of a service contract between the complainant and the European Commission.

The complainant alleged that the Commission’s refusal to reimburse travel costs and per diem payments for the experts is not in accordance with the contract, a position which the Commission has not accepted.

1.2 The European Ombudsman first recalls that Article 2 of the Special Conditions of the contract states the following:

"The Consultant will carry out the services on the terms and conditions set out in this contract, which comprises, in order of precedence these special conditions ("Special Conditions") and the following annexes:

Annex I: General Conditions for service contracts financed by the European Community

Annex II: Terms of reference

Annex III: Organisation and methodology

Annex IV: Key experts

Annex V: Budget breakdown and cash flow forecast

Annex VI: Tax and customs provisions".

According to Article 3 of the Special Conditions, "(...) [t]he fee rates to be paid for the experts provided by the Consultant to carry out the services, together with the Provision for incidental expenditure, are set out in the Budget breakdown."

Article 5.3 of the terms of reference provides that "[t]he maximum budget available for the technical assistance to be contracted through this tender is EUR 700 000, which includes fees for the EU co-director, members of the TAT and other training experts, all travel expenses (both EU/[third country] and inside [the third country]) and, training activities. The provision for incidental expenditure with a budget of EUR 370 000, as mentioned in Annex V of this tender dossier, should cover the following costs:

- international, local travel and per diem for experts,

- study visits (travel and per diem of [local] staff to EU laboratories,

- translation,

- training activities (...)"(emphasis added)

According to Annex V (Budget breakdown), "(...) [a]ll fee rates must comprise:

- the remuneration actually paid to the experts concerned per working day,

- administrative costs of employing the relevant experts, such as relocation and repatriation expenses, accommodation, expatriation allowances, leave, medical insurance and other employment benefits accorded to the experts by the Consultant,

- the margin, covering the Consultant's overheads, profit and backstopping facilities.

(...)the provision for incidental expenditure does not cover travel to/from the beneficiary country for international experts (other than for missions within the contract) (...) The financial evaluation of tenders only considers the fee rates, since the provision for incidental expenses is determined in the terms of reference" (emphasis added).

According to the Commission's clarification letter dated 7 November 2001, "(...) the provision of incidental expenditure with a budget of EUR 370 000 is included in the maximum budget of EUR 700 000. The incidental expenditure should cover the costs for: study visits (including travel and per diem of [local] staff to EU laboratories), translation, training activities, travel costs (international and local) for the foreseen missions, per diems and overnight allowances for long and short term experts. Consequently, the fee rates to be indicated for the different experts should comprise: the remuneration actually paid to the experts concerned per working day, and the administrative costs of employing the relevant experts, such as relocation and repatriation expense, accommodation, expatriation allowances, leave, medical insurance and other employment benefits accorded to the experts by the consultant." (emphasis added)

1.3 The complainant noted that the terms of reference take precedence over Annex V to the contract. Moreover, he considered that, on the basis of the terms of reference and of the Commission's clarification letter of 7 November 2001, the incidental expenditure should cover travel costs and per diems while the fee rates should cover the remuneration and administrative costs for the experts.

1.4 In its opinion, the Commission maintained its position that, according to the contract signed with the complainant, in order to be considered for payment by the Commission's Delegation in the third country (the "Delegation"), per diems and travel costs can only be regarded as eligible costs under incidental expenditure if they are related to missions from the principal base. Costs for relocation (such as travel from/to Europe/third country, accommodation costs in the third country) are assumed to be included in the fee rates. The terms of reference provide general information on the budgetary issues while they explicitly refer to Annex V ("as mentioned in Annex V of this tender") for further elaboration, as well as for the definition and implementation of terms such as "travel" and "per diems". In this sense, the provisions in Annex V do not contradict but rather must be read in conjunction with the terms of reference. In addition, the clarification letter of 7 November 2001 sent to all tenderers, complementing the terms of reference, confirmed the provisions of Annex V: the fee rates cover relocation, repatriation, accommodation, and expatriation allowances. By tendering and having acquired knowledge of these clarified terms of reference, the complainant is deemed to have accepted the said provisions as contractual terms. Moreover, the relevant clarification letter has been included in the contract and has been signed by the complainant. Furthermore, Article 3 of the Special Conditions, which forms part of the contract's main body and therefore takes precedence over the terms of reference, indicates that:

"This contract, established in euro, is a fee-based contract. The maximum contract value is EUR 699 920. The fee rates to be paid for the experts provided by the consultant to carry out the services, together with the provision for incidental expenditure, are set out in the Budget breakdown."

As regards the complainant's argument that, by approving the Inception Report, the Delegation agreed to the budget breakdown as proposed by the complainant, the Commission considered it to be irrelevant as:

(i) the budget submitted by the complainant with the Inception Report is only indicative as specified in the report itself;

(ii) there is no explicit information referring to the complainant's interpretation of "per diems" and "travel".

Finally, the price of the tender was a factor considered at the evaluation stage. The complainant was awarded a commercial contract on the basis of its technical merits and its fee rates. Any changes to the interpretation of what should be included in the fee rates would lead to distortion of fair competition.

1.5 The Ombudsman notes that the dispute between the Commission and the complainant concerns, in essence, the eligibility of certain expenditure and the interpretation of the relevant contractual provisions. The Commission's position is that per diems and travel costs can only be considered eligible costs under incidental expenditure if they are related to missions from the principal base and that costs for relocation are assumed to be included in the fee rates. He further notes that the Commission based its decision rejecting the complainant's requests as regards experts' travel costs and per diems on the provisions of the contract and explained that:

• the provisions in Annex V do not contradict the terms of reference, but form part of it. They were confirmed by the clarification letter. Moreover, Article 3 of the Special Conditions refers to Annex V and therefore takes precedence over the terms of reference;
• the budget submitted by the complainant with the Inception Report is only indicative and does not provide explicit information as regards the complainant's interpretation on per diems and travel costs.

1.6 Having reviewed the documents included in the file and in particular the contract, the Ombudsman considers that the Commission's interpretation of the relevant contractual terms and in particular its argument that (i) Annex V complements and specifies the provisions of the terms of reference, and (ii) the clarification letter confirmed the provisions in Annex V, is reasonable and adequately founded.

1.7 The Ombudsman concludes that the Commission has put forward a reasonable and adequate account of the reasons for which it believes that the expenses at issue cannot be reimbursed and that the complainant's arguments to the contrary cannot be sustained. The Ombudsman therefore finds no maladministration by the Commission.

2 The claim

2.1 The complainant claimed that the travel costs and the per diems for experts should be refunded by the Commission. He assessed the total amount of such reimbursement at approximately EUR 50 000.

2.2 In the light of his finding in point 1.7 above, the Ombudsman is of the view that the complainant's claim cannot be sustained.

3 Conclusion

On the basis of the Ombudsman's inquiries into this complaint, there appears to have been no maladministration by the Commission. The Ombudsman therefore closes the case.

The President of the Commission will also be informed of this decision.

Yours sincerely,

 

P. Nikiforos DIAMANDOUROS

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(1) According to Article 6 of the Special Conditions of the contract, "[t]he inception report should be presented not later than one month after the start of the project and should contain an overall work programme, including a corresponding indicative budget for the whole project duration (...)".

(2) The Project Manager is the person responsible for monitoring the implementation of the contract on behalf of the Commission.

(3) TAT stands for Technical Assistance Team.